U.S. added 165,000 jobs in October — and now a December rate hike looks likely

The U.S. labour market bounced back in a big way in October, with employers adding far more jobs than economists expected — and the strong report has traders betting the Federal Reserve will raise interest rates again in December.

U.S. nonfarm payrolls rose by 165,000 jobs last month, the Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast a gain of 65,000, and the Dow Jones survey had put the figure at 59,000. September's originally reported gain of 29,000 was revised higher to 60,000, and August's was revised up to 186,000 from 133,000.

The unemployment rate fell to 4.1 per cent from 4.2 per cent in September, against forecasts it would hold steady. Average hourly earnings rose 0.4 per cent in the month and 3.1 per cent from a year earlier, both slightly above estimates. Professional and business services led the hiring with 70,000 new payrolls, followed by health care at 42,000, TipRanks reported.

A December hike is back on the table

After the report, traders raised the probability of a quarter-point rate increase at the Federal Reserve's December 8–9 meeting to about 77 to 80 per cent, according to the CME Group's FedWatch tool, up from roughly 67 per cent the day before. The Fed held its benchmark rate steady at 3.75 to 4.00 per cent on October 28, after raising it in September for the first time since 2023.

The strong jobs data pushed Treasury yields higher: the 10-year yield rose to about 4.88 per cent, and the U.S. dollar index climbed 0.7 per cent to 102.18, Reuters reported.

Markets split on the news

Stocks were mixed in early Friday trading. The Nasdaq was up about 2 per cent and the S&P 500 up about 1 per cent as investors bought the dip in chip stocks after Thursday's rout, CoinDesk reported — but the Dow fell 0.66 per cent, with defensive names like Walmart, Johnson & Johnson and Procter & Gamble offsetting the tech gains.

What it means in Canada

A Fed hike in December would widen the gap with the Bank of Canada, which raised its own rate to 2.50 per cent on October 28 and is widely expected to hold there. Higher U.S. rates tend to strengthen the U.S. dollar against the loonie, which can push up import prices and the cost of servicing U.S.-dollar debt for Canadian companies — and can complicate the Bank of Canada's own rate path if inflation pressures build.

Canadian investors also watch the U.S. jobs data for what it says about the health of Canada's largest trading partner: a resilient American labour market supports demand for Canadian exports, even as 50 per cent U.S. tariffs on a range of Canadian goods continue to bite. Next Tuesday's U.S. consumer inflation report will give the Fed its next big data point before the December meeting.